Commentary: There are several important aspects of employee health plans and networks that, although well-known by benefit professionals, may not be common knowledge to health care consumers. For example:

  • Self-funded health plans don’t use health insurers, only health plan administrators.
  • Supply and demand influence the distribution and price of health care.
  • Plan participants are free to negotiate directly with out-of-network physicians.

Sure, we understand these concepts. But how effectively are we communicating these concepts to our health plan participants?
For example, my cousin called me the other day. Her employer sponsors a self-funded plan. Claims administration and national network services are provided by an industry leader. Because her favorite physician had just dropped out of her network, she was torn between paying more out of pocket to stay with her physician and finding a new physician within her national network. Knowing my profession, she asked for my advice. I offered, “The first question to ask yourself is how much this physician is worth to you – how much more are you willing to pay to see this physician out of network?”

She replied, “I’m not sure. How much do you think my plan would cover out of network?”

I explained that because her service wouldn’t come close to meeting the high out-of-network deductible, she would pay the claim’s full retail rate of $350. Meanwhile the in-network discounted rate was only $150. Thus, like most plan participants, she wondered how the discount could be that high and asked if it was fair.

I explained that with a self-funded plan, there is no health insurer, only a health plan administrator. Thus, the administrator’s revenue doesn’t change if the discounted charge was $175, $250, or $300. But, every dollar their network reduces the charge is another dollar that the employer saves and can invest back into its employees’ total compensation.

“Doesn’t it seem unfair that these discounts are pushing the best physicians out of the network?” she then asked. To which I replied that while there’s some movement away from a pure fee-for-service payment model, presently, the main economic reason why a physician would reduce their charge is to increase demand by gaining access to a network’s members. If the physician has sufficient demand, they have no economic incentive to cut their prices. Look at it this way: If you were a farmer at a farmer’s market and sold out of Napa cabbage every week, would you cut your price?

Regarding the fairness, I explained that if the network increased its reimbursement rate, the employer’s costs would increase, holding down, or even reducing employee wages. Thus, it’s hard to view fairness in a vacuum.

While I probably would not pay the extra money for the out-of-network physician, the real question is if she would. What’s luxury to one is frivolous to another and vice versa, right? For example, for a long weekend trip, I’ll pay an extra $40 to park in the airport’s daily garage to skip the bus ride and save 45 minutes. Meanwhile, I have friends who will park five miles outside of the airport in the long-term lots. If we have divergent purchasing views on commodities such as parking, it’s natural that this divergence will amplify on matters of health and well-being.

But, I offered an alternative idea: If the physician’s retail charge is $350 and the discounted rate they won’t accept is $150, why not give the physician’s office a call and negotiate a compromise? Offer to meet them in the middle.

My cousin was surprised — like many plan participants, she had not considered this option before, which is odd because our entire health care delivery model is based on third-party negotiations with health care providers. Negotiation is what drives the delivery model.

At the end of our lengthy conversation, my cousin laughed — she had figured that I was just going to tell her to change physicians. A few days later, she triumphantly announced that she called the physician’s office and negotiated a price that both parties were pleased with. It was a win-win-win:

  • The physician received the revenue she desired for her service.
  • My cousin purchased the goods she needed from a supply source she cherished.
  • Her employer’s health care costs did not rise, preventing further shifts from cash compensation to benefits compensation.

For employers sponsoring self-funded plans, please consider these questions:

  • Do your employees know that your plan is self-funded?
  • Have you explained why network discounts increase total employee compensation?
  • If you offer plans with and without out-of-network coverage, have you explained why an employee with modest out-of-network usage will usually still come out ahead, financially, by purchasing the in-network only plan?

Please share your answers, perspectives, and related stories via the below comment section.
Zack Pace is a senior vice president, benefits consulting at CBIZ, Inc. He can be reached at ZPace@cbiz.com. Follow him on LinkedIn and Twitter @zpace_benefits

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